CASE STUDY DSF is a small but technically successful company in the man-made fibre industry.

The company is heavily dependent on the sales of Britlene, a product it developed itself, which accounted in 1996 for 95 per cent of total sales.Britlene is used mainly in heavy-duty clothing, although small quantities are used to produce industrial goods such as tyre cord and industrial belting. Its main properties are very high wear resistance, thermal and electrical insulation. In 1996 the company developed a new product, Britlon. Britlon had all the properties of Britlene but was superior in its heat-resistant qualities. It was hoped that this additional property would open up new clothing uses (e.g. a substitute for mineral wool clothing, added to nightwear to improve its inflammability) and new industrial uses in thermal and electrical insulation. By late 1996 the major technical and engineering problems associated with bulk production of Britlon seemed to have been solved and DSF set up a working party to put forward proposals on how the new product should be phased into the companys activities. The basic production method of Britlene and Britlon is similar to that of most manmade fibres. To make a manmade fibre, an oil-based organic chemical is polymerized (a process of joining several molecules into a long chain) in conditions of intense pressure and heat, often by the addition of a suitable catalyst. This polymerization takesplace in large autoclaves (an industrial pressure cooker). The polymer is then extruded (forced through a nozzle like the rose of a garden watering can), rapidly cooled and then either spun onto cones or collected in bales. The raw materials for Britlene and Britlon are produced at Teesside in the UK. Britlene is produced at three factories in the UK: Teesside, Bradford and Dumfries. The largest site is Teesside with three plants. There is one plant at each of the other two sites. All five production plants have a design capacity of 5.5 million kg per year of Britlene. However, after allowing for maintenance and an annual shutdown, expected output is 5 million kg per year. Each plant operates on a 24-hours-per-day, seven-days-per-week basis. Britlons production process is very similar to that used for Britlene, but a totally new type of polymerization unit is needed prior to the extrusion stage. DSF approached Alpen Engineering Company, an international chemical plant construction company, for help on a large-scale plant design of the new unit. Together they produced and tested an acceptable design. There are two ways of acquiring Britlon capacity. DSF could convert a Britlene plant, or it could construct an entirely new plant. For a conversion the new polymer unit would need to be constructed first. When complete it would be connected to the extrusion unit which would require minor conversion. At least two years would be

needed either to build a new Britlon plant or to convert an old Britlene plant to Britlon production. The CEO was quoted as saying: The creation of an entirely new site would increase the complexities of multi-site operation to an unacceptable level. Conversely, the complete closure of one of the three existing sites is, I consider, a waste of the manpower and physical resources that we have invested in that location. I believe expansion could take place at one, two or all of the existing sites. Only on Teesside is there higher than average general unemployment, but the unemployment rate for skilled and semi-skilled workers is quite low at all sites. Demand for skilled labour on Teesside is from two giant companies, both of which are expanding in that area; at Dumfries and Bradford there is little or no competition. Demand forecasts for the two products (millions of kg per year) are shown in Table. They show that although Britlene sales will probably fall rapidly once Britlon is introduced, there is likely to be a residual level of sales of the older product. Questions 1 What order schedule would you propose for conversions and new plant? 2 In which locations would you make these capacity changes? 3 What criteria have you used to make your recommendations? 4 What do you see as the main dangers facing DSF as it changes its capacity over the next five or six years?

5 List some of the risks involved while making outsourcing decisons.